Federal officials have issued final regulations establishing how investment advisors providing 401(k) participants with advice without violating transaction rules.
The U.S. Department of Labors Employee Benefits Security Administration said in a statement the regulations are designed to prevent investment advisors from providing biased advise against a participants best interests.
The new regulation implements an exemption that Congress enacted as part of the Pension Protection Act of 2006 to improve participant access to fiduciary investment advice. The regulation implements a prohibited transaction exemption under an amendment to the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code that is part of the Pension Protection Act of 2006.
Given the rise in participation in 401(k)-type plans and IRAs, the retirement security of millions of Americas workers increasingly depends on their investment decisions, said EBSA Assistant Secretary Phyllis C. Borzi in a statement. This rule will make high-quality fiduciary investment advice more accessible, while providing important safeguards to minimize potential conflicts of interest.
To qualify for the exemption in the final regulation, investment advice must be given through the use of a computer model that is certified as unbiased by an independent expert or through an adviser compensated on a level-fee basis, meaning that the fees do not vary based on investments selected. Both types of arrangements must also satisfy several other conditions, including the disclosure of the advisers fees and an annual audit of the arrangement for compliance with the regulation.
Officials aid the regulation is separate from and does not affect the Labor Departments proposed rule on the definition of fiduciary investment advice, which the department recently announced that it will re-propose.
The prohibited transaction rules in ERISA and the IRC generally prevent a fiduciary investment advisor from recommending plan investment options if the adviser receives additional fees from the investment providers. Although these rules protect participants from conflicts of interest, ERISA provides exemptions from the rules in appropriate circumstances and permits the department to grant exemptions that have participant-protective conditions.
The regulation will be published in the Oct. 25 Federal Register and can be viewed at .
Similar Posts:
- Does ‘Overfunding’ Life Insurance Policies Beat Buying Stocks?
- New Federal Rules Impact Insuring Children
- ING to sell Insurance Latam to GrupoSura for EUR 2.7 bln
- Beazley selected by CalSurance as Information Security & Privacy liability insurer
- Indonesia’s motor insurance industry to see robust growth by 2016: report
